USA—Insider trading

The following Financial Services practice note provides comprehensive and up to date legal information covering:

  • USA—Insider trading
  • The restriction on insider trading
  • What is insider trading?
  • Sources of law
  • Elements of a Rule 10b-5 insider trading case
  • Insiders
  • MNPI
  • Materiality
  • Scienter
  • Tipping
  • More...

USA—Insider trading

The restriction on insider trading

What is insider trading?

Insider trading is usually associated with illegal conduct. However, the term actually includes both legal and illegal conduct. The legal version is when corporate insiders of a public company, eg officers, directors, and employees, buy and sell stock in their own companies. When corporate insiders of a US publicly traded company trade in their own securities, they should report their trades to the SEC. More information about this reporting obligation can be found in Forms 3, 5 and 5 in the Fast Answers databank of the Securities and Exchange Commission (SEC).

Illegal insider trading is the buying or selling of a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security (MNPI). Other violations of insider trading violations include 'tipping' such information, securities trading by the person 'tipped', and securities trading by those who misappropriate such information.

Because insider trading undermines investor confidence in the fairness and integrity of the securities markets, the SEC has long treated the detection and prosecution of insider trading violations as one of its enforcement priorities.

In the US, insider trading law is generally interpreted more narrowly than in the UK. A main difference being that under a classical theory of insider trading in the US, the government must prove

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